CRE Counselors: COVID-19, Economy Top Survey Concerns

The Counselors of Real Estate, Chicago, said the COVID-19 crisis will teach commercial real estate practitioners new lessons about priorities, resilience and demand.

“In examining [post-COVID] real estate markets, we must consider existing fragility, adaptability to new demands and potential relevance to new markets,” said Michel Couillard, President and CEO of BUSAC Real Estate, Montreal. “Demand will be defined by the extent to which this crisis leads us to abandon old habits and adopt new ones. The duration of the lockdown has been a factor and so is the confidence with which we emerge.”

The annual survey ranks the top 10 issues the commercial real estate sector faces. Unsurprisingly, COVID-19 topped the list for 2020. The U.S. economy, which showed signs of decline prior to the pandemic, ranked second.

“There were a number of statistical signals of deceleration for those willing to see them,” Couillard said. “The challenges facing the economy and the real estate industry are deep and persistent, with leisure and hospitality, retail, construction and air travel seeing slow and partial rebounds into 2022.“

Couillard said a relatively low 1.5 to 1.6 percent long-run GDP growth is likely post-COVID-19. “That is the ‘new normal’ for which we need to prepare,” he said.

Capital market risk rounded out the report’s top three issues of concern, because the last four months have presented not only real-time capital market volatility, but also confirmed how quickly debt and equity capital liquidity can stop flowing when risk and returns are difficult to measure.

“One thing we have seen since March is that volatility has spiked, which makes pricing debt more challenging,” Couillard said. “Federal intervention helped to limit a complete seizing of the markets, but doesn’t necessarily mitigate the longer-term concern about defaults and loses. While pricing stability and liquidity appear to have somewhat returned, late payments and loan defaults have seen a significant increase.”

Other issues cited in the report include public and private indebtedness, ESG (Environmental, Social and Governance) criteria, affordable housing, space use, technology and workflow.